Chapter 26 Review

Chapter 26 Review - Chapter 26: The Exchange Rate...

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Chapter 26: The Exchange Rate Currencies and Exchange Rates To buy foreign goods and assets, Canadians need foreign currency (foreign notes, coins, bank deposits). To buy Canadian goods or assets, foreigners need Canadian dollars Foreigners and Canadians exchange dollars for foreign currency in the foreign exchange market Foreign exchange rate = price at which one currency exchanges for another (number of US cents per Canadian dollar). o Currency depreciation is the decrease in value of Canadian dollar in terms of another currency o Currency appreciation is the increase in value of Canadian dollar in terms of another currency Since 1985, the Canadian dollar has fluctuated versus the US dollar, but has been steady versus other major currencies. The Foreign Exchange Market The exchange rate is determined by supply and demand in the foreign exchange market. Demand for Canadian dollars by foreigners is matched by a supply of their currency. Supply of Canadian dollars by Canadians is matched by a demand for foreign currency. Quantity of Canadian dollars demanded in the foreign exchange market = amount traders plan to buy at a given price, on the basis of demands for Canadian exports and Canadian assets. Quantity of Canadian dollars demanded depends on: o Exchange rate o World demand for Canadian exports o Interest rates in Canada and other countries o Expected future exchange rate Increase in exchange rate decreases quantity demanded of Canadian dollar
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This test prep was uploaded on 04/18/2008 for the course ECON 101 taught by Professor Arbenser during the Winter '08 term at UNBC.

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Chapter 26 Review - Chapter 26: The Exchange Rate...

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